How does the stock market work in Grand Theft Auto V, and how do you use it to your advantage?

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Buy stocks when they're low (red) and sell them when they're high (green). The higher percentage a stock is when it's red, the cheaper it will be. And thus, fairly likely to increase by a significant margin and allow you to make a profit.

You can perform assassination missions with Lester. Before each mission, he will tell you how different stocks will react to the mission. Once he tells you, the quest starts. But you can quit the mission, then invest all your money into the stock that will increase. After it's over, wait for the stock percentage to rise 50% (that's the max I've seen it go) and SELL SELL SELL.